Monday, February 27, 2006

An Obvious Observation – Prices are all Over the Place

How did people look to buy houses in the old days before the Internet? I like to look at the houses on the MLS and see where prices are at for specific towns. Since I have been looking at various houses on the MLS for about a year, I think I’m getting pretty good at looking at house, and its price, and knowing the town, and making a split second decision if it’s over valued. There is nothing scientific about looking for interesting houses and making a quick decision, as to whether to read on further, it’s just a necessity given all the houses that are for sale and all the houses that are priced too high. If the picture and the price and the town don’t match, then just skip to the next listing.

Given the number of listings, and the pictures that accompany them, I think I’m observing a scattershot approach to pricing on the part of owners. In essence, many people do not seem to know what price to list their house at so they try any price. This is evident when you see two nearly identical houses in the same town and there is 20% difference between asking prices. I realize that at any point any house could have a ton of unobservable upgrades, which would justify a 20% difference; however, some houses that have high asking prices are clearly out-of-whack with the other houses in the neighborhood.

I could be imagining large price differences and maybe I’m just biased because I follow the real estate market more now than I used to. However, I think that housing market prices are behaving similarly to stock prices at an inflection point, therefore giving me some comfort that my anecdotal information is not just reflecting my biases and preferences.

If you follow stock prices, you’ll notice that absent news or rumors, prices between the bid and ask usually remain constant throughout the day and close together. For example, the bid and ask spread may consistently be 10 cents. On days when market making news occurs, especially negative news, the spread widens within seconds of the news as some sellers try to get out immediately at the last price before the news, and more anxious sellers head for the exit at any price. In some cases it seems that the market just hangs in mid-air with the bid and ask price so far apart no trades get done. This is what my perception of the housing market is currently doing, only much more slowly. It is behaving like a stock that just got hit with negative news. Some houses are being priced lower and the owners are getting out, but most house owners though are still trying to get their “pre-negative news” price and are holding out for more information or a bounce. Meanwhile, the number of trades that get done are actually down.

4 Comments:

Anonymous Anonymous said...

Very accurate observation. Sad but true, as I shop for homes via internet, if the town, house and price don't fit, I move on. As a buyer, I have tightened my price range and expectations. I will not throw money into an over pirced house with the fear that prices will go up. I now wonder how much the house value/price will fall in the near future and consider renting another year. There is no way we would even consider stretching our budget or applying for a bigger mortgage in this market.

Monday, February 27, 2006 8:20:00 PM  
Blogger njcoast said...

Flipper alert!!!!!

1 Ocean Ave.- Loch Arbour
Sold- 1/31/06- $1,999,999.
Listed- 2/14/06- $2,750,000.

110 Euclid Ave.- Loch Arbour
Sold- 7/01/05- $1,400,000.
Listed 2/19/06- $2,400,000.

2 Interlaken Dr.- Interlaken
Sold- 3/27/03-$550,000
Listed 2/20/06- $1,799,000.

Tuesday, February 28, 2006 12:43:00 PM  
Anonymous Anonymous said...

thanks for yet another flippers alert. I have a friend who bought on the jersey shore a couple of years ago. Bought for $1.9 million then just months later put it on the market for about $2 million more than he paid.
Still not sold, but hope springs eternal. He believes prices will never go down and that some sucker will come along some day and purchase it. Not in this lifetime.

Tuesday, February 28, 2006 5:22:00 PM  
Blogger RyanAnthony said...

Internet has creeped into all walks of life. This thing of MLS listing is now no longer a new issue. Every other person refers to an MLS Listing service. The advice that I would give is that, if you are really serous of getting listed or buy a property, please don't go for a free listing, the best option would be a flat fee listing.

Tuesday, August 01, 2006 3:40:00 AM  

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